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Because of the rapid pace with which Venture Capitalists review investment opportunities, they must employ pattern matching techniques which include identifying common fundraising deal breakers.

Fortunately, most deal breakers can be avoided, with a bit of pro-active thought and deft execution.

Breaking The Deal Breakers

Surprisingly, most venture investments do not break down over valuation. Although the issue is inherently contentious, it can usually be resolved if both parties negotiate in good faith. However, it is often more difficult to salvage a deal once one of the following deal breakers comes to light. In many instances, investors simply do not have the patience to wait for an entrepreneur to sufficiently clean up their deal once a significant issue is identified during the due diligence process.

Such deal breakers come in a variety of colors and styles. Some of the most common include:

1. Junked-up Capital Table – A hodgepodge of small investors who may cause potential headaches for management and/or institutional investors.

Solution – Repurchase as much stock from these unsophisticated investors as is practical and then convert any remaining preferred stockholders to common stock status.

Solution – In most failed ventures, the only asset of value upon dissolution is the company's underlying intellectual property (IP), as further discussed in Worthlesss IP. As such, make it easy for investors to unequivocally evaluate the veracity of your venture's IP.

5. Legal Landmines – Real or imagined legal exposure.

Solution – No matter how frivolous, lawsuits seriously chill investors’ interest. It is generally advantageous to fight nuisance lawsuits to avoid becoming known as an easy mark for unscrupulous lawyers. However, when fundraising, it is more appropriate to expeditiously resolve pending litigation, rather than expend energy trying to convince a skeptical investor that your legal challenges are without merit.

Solution – During a venture’s early days, virtual teams are often viable. However, as a company's growth accelerates, the core team members are often handicapped by disparate locales. As such, remote members in key roles should be prepared to either routinely commute or relocate, once institutional capital is secured.

Solution – Identify the competencies that are critical to your startup's success and develop them internally. For instance, technology startups should maintain key development resources in-house, rather than relying exclusively on third-party, contract labor. If your business model is predicated on online customer acquisition, do not exclusively rely on consultants to craft and execute your online marketing initiatives.

Solution – The inclusion of disciplined, experienced investors will require you to focus on deriving a measurable return on every dollar you spend. As such, eliminate any unconventional forms of compensation or other potential areas of agency conflict before you engage with prospective investors.

Frictionless Fundraising

Savvy entrepreneurs resolve potentially problematic issues on their own terms, before they begin raising capital. By ensuring that investors perceive your venture as deal breaker free, you will significantly reduce the friction of your fundraising efforts, allowing you to spend your valuable time running your business.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet about cute kitten videos or that killer burrito I just ate. You can also check out my hands-on startup advice blog HERE.

Special thanks to Jim Andelman, Co-Founder and General Partner of Rincon Venture Partnersfor his insightful suggestions.